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BENCHMARKING ESG: ANALYSIS OF THE SIZE, GROWTH & PENETRATION OF SUSTAINABLE FINANCE


Our report produced in partnership with New Financial cuts through some of the noise around ESG and uses more than 60 metrics to analyse the size, growth and penetration of ESG in different sectors of financial services around the world. It highlights the rapid growth in ESG activity in financial services, the high level of public commitment to ESG across the industry, and some of the challenges of translating this into implementation and delivery.

Nicolas Mackel, CEO of Luxembourg for Finance, said: “There is a growing level of commitment to ESG initiatives across the financial services industry, with the EU being a clear pioneer and leader in this space.”

400%

the average growth of ESG activity in financial services from 2016 to 2020

90%

ESG metrics across the industry where Europe holds a key global lead

<1%

observable ESG activity in retail banking and insurance in Europe as proportion of total activity​

Key drivers

Some of the highlights of the report include:

  • Rapid growth in ESG: global ESG activity has increased fivefold in the past five years. For example, the value of ESG bond issuance increased fivefold from 2016 to 2020 from $107bn a year to $569bn, and the value of ESG investment funds has nearly quadrupled from $476bn to $1.8 trillion.
  • A relatively low penetration: for all of the noise around ESG, it still represents less than 6% of all global activity in those sectors of the capital markets that have clearly designated ESG activity. Even in the EU, where ESG has the highest penetration, ESG investment funds account for just 13% of investment funds assets, and ESG bonds represented 14% of all bond issuance in 2020.
  • A strong lead for Europe: Europe, and particularly the EU, has a clear global lead in ESG activity. In more than 90% of the 60+ metrics that we analysed, the EU is well ahead of the UK, US, and Asia. In many cases, the share of ESG activity as a percentage of total activity in the EU is more than four times higher than in the US and UK. In most markets, Europe punches significantly above its weight with ESG activity in global capital markets.
  • An imbalance in funding: ‘bad ESG’ companies (mainly in the oil, gas, mining & transport sector) raise 10 times as much money in global capital markets as ‘good ESG’ companies (such as renewable energy firms).
  • A public commitment to ESG: the public commitment of large asset managers, banks, insurance firms, pension funds and stock exchanges is high but not universal. Two thirds (65%) of the largest firms in banking and finance in Europe have signed up to at least of the main ESG initiatives (compared with 41% of the largest firms globally).
  • Concrete action: turning this public commitment into concrete action is hard. The average compliance rate with the 10 main requirements of the Task Force on Climate-Related Financial Disclosures (TCFD) among asset managers is just 41%.